Spotify: Music's SAAS transformation is complete
Spotify is definitely not for everyone, given high churn and competition from Apple, Google and Amazon it is very easy to put it in the "ignore bucket" as downside protection is almost zero. If you want to be negative, it is easy to find reasons to be negative.
We think this is the wrong decision, the industry background is too compelling, but it is going to be a bumpy ride.
We find the industry attractive, music's SAAS transition is complete and music labels and Spotify have fully aligned interests in ensuring the success of streaming.
The main bet is that streaming wins, and Spotify is one of the key players.
Spotify’s has a dominant position, and we don’t see this changing. Ad-supported streaming is a competitive advantage.
Longer term, the industry has pricing power and the structure to apply it. Limited to no pricing power is captured in the valuation.
Potential Upside: $265 (+90%) over 5 years.
There is no downside protection in our opinion.
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